Can Non-Subscribers Open and Fund Their Own Accounts?

Question: I’m enrolled in my spouse’s HSA-qualified plan. Can I open and fund my own Health Savings Account, even though I’m not the plan subscriber?

Answer: Yes. You do not have to be the subscriber (the employee when it’s a company-sponsored plan) to be HSA-eligible. Eligibility is based on your (1) being covered on an HSA-qualified medical plan, (2) not being covered by any disqualifying coverage, and (3) not qualifying as someone’s tax dependent. It’s common for two or more people – typically spouses – on a family contract to be eligible to open and fund a Health Savings Account.

Example: At various intervals, the author’s family included as many as five family members – the author, his wife, and three adult children who were no longer tax dependents who were covered on the family contract and satisfied eligibility requirements. Each could open and fund his or her own Health Savings Account.

In some cases, having more than one person on the contract who’s HSA-eligible is important. Here are some examples:

• The subscriber is no longer HSA-eligible. She continues to cover herself and her spouse on her employer’s HSA-qualified plan. She can’t make or receive additional contributions to her account. Her spouse can open a Health Savings Account, and together they can contribute up to the statutory maximum annual contribution for a family contract (plus a $1,000 catch-up contribution if the spouse is age 55 or older) into the spouse’s Health Savings Account.

• The non-subscriber spouse turns age 55. He can make an annual $1,000 catch-up contribution (see Question 48). Catch-up contributions can be made by anyone, but they must be deposited into an account that he owns.

• The plan covers the subscriber’s domestic partner or ex-spouse (some states require insurers to cover ex-spouses when a judge’s order mandates coverage as part of a divorce agreement). The subscriber can’t reimburse her domestic partner’s or ex-spouse’s qualified expenses tax-free (see Question 106 and Question 107). The domestic partner or ex-spouse can open his own Health Savings Account and reimburse his own (and his tax dependents’) qualified expenses tax-free.

• The plan covers the subscriber’s adult child or children who are no longer the subscriber’s tax dependents. Same situation as above: If the non-subscriber adult children satisfy all eligibility requirements, they can each open a Health Savings Account, anyone can contribute, and the children can reimburse their qualified expenses tax-free from their account.

In most other cases, it makes sense for only one adult (typically the subscriber, if she’s HSA-eligible) to own and maintain a Health Savings Account. She can maximize the tax savings associated with the account by making pre-tax payroll contributions before federal payroll, federal income, and state (except in California and New Jersey) income taxes are applied.

And the subscriber can reimburse her own, her spouse’s, and her tax dependents’ qualified expenses tax-free from her account.

In most cases, a married couple under age 55 with dependent children gains no contribution advantage or distribution advantage from the non-subscriber’s ability to establish and use a Health Savings Account. Together the spouses are limited to the family maximum contribution, and either spouse can reimburse his own, his spouse’s, and his tax dependents’ qualified expenses tax-free. But when the couple aren’t married, the family has adult children who are no longer tax dependents, the non-dependent spouse is age 55 or older, or the subscriber is no longer HSA-eligible, a non-subscriber’s ability to open, contribute to, and distribute tax-free from a Health Savings Account is important.

Reference

IRS Notice 2004-2:

 Q-2. Who is eligible to establish an HSA?

A-2. An “eligible individual” can establish an HSA. An “eligible individual” means, with respect to any month, any individual who: (1) is covered under a high-deductible health plan (HDHP) on the first day of such month; (2) is not also covered by any other health plan that is not an HDHP (with certain exceptions for plans providing certain limited types of coverage); (3) is not enrolled in Medicare (generally, has not yet reached age 65); and (4) may not be claimed as a dependent on another person’s tax return.

 IRS Notice 2013-17:

 4. Registered Domestic Partnerships, Civil Unions, or Other Similar Formal Relationships Not Denominated as Marriage . . .

For Federal tax purposes, the term “marriage” does not include registered domestic partnerships, civil unions, or other similar formal relationships recognized under state law that are not denominated as a marriage under that state’s law, and the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals who have entered into such a formal relationship. This conclusion applies regardless of whether individuals who have entered into such relationships are of the opposite sex or the same sex. . .

3. For Federal tax purposes, the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term “marriage” does not include such formal relationships.

See Internal Revenue Code Section 223 (c)(1)(A).

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The content of this column is informational only. It is not intended, nor should the reader construe the content, as legal advice. Please consult your personal legal, tax, or financial counsel for information about how this information applies to you or your entity. HSA Question of the Week is published every week, alternating every other Wednesday with HSA Wednesday Wisdom and every other Monday with HSA Monday Mythbuster.